loan compositiondeposit composition

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P

ER

CE

NT

S

IN

P

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CE

NT

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n1-4 FamilynManufactured HomesnCommercial Real Estaten�Home Equity & ConsumernCommercial “C&I”

nSavingsnTime DepositsnInterest Bearing CheckingnMoney MarketnNoninterest Bearing Checking

Second

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QUARTERLY REPORT

52%

8%

10%

20%

10%

12%

5%

29%

12%

42%

net income

IN

T

HO

US

AN

DS

efficiency

IN

P

ER

CE

NT

S

Q32015

80.14

net interest margin

IN

P

ER

CE

NT

S

Q32015

3.63

cost of funds

IN

P

ER

CE

NT

S

Q32015

1.08

100

provision for loan losses

IN

T

HO

US

AN

DS

Q32015

yield on assets

IN

P

ER

CE

NT

S

Q32015

4.62

Q42015

-66

Q42015

80.30

Q42015

3.96

Q42015

1.05

Q42015

4.93

700

Q42015

Q12016

16

94.59

Q12016

3.67

Q12016

1.03

Q12016

4.63

Q12016

150

Q12016

Q22016

21

93.95

Q22016

3.40

Q22016

Q22016

1.05

4.39

Q22016

170

Q22016

Q32016

-32

94.75

Q32016

3.43

Q32016

Q32016

1.05

4.41

Q32016

150

Q32016

Q42016

-1502

96.79

Q42016

3.66

Q42016

Q42016

1.06

1845

Q42016

Q12017

68

93.65

Q12017

3.68

Q12017

1.03

Q12017

4.64

Q42016

4.65

Q12017

105

Q12017

Q22017

197

90.92

Q22017

3.69

Q22017

1.01

Q22017

4.63

Q22017

105

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PAID

20 E Bayard Street // Seneca Falls, NY 13148-0111 PRESORTED

FIRST-CLASS MAIL U.S. POSTAGE

P A I D COMMUNICATION SERVICES

SENECA-CAYUGA BANCORP, INC.

Q2 2017 Quarterly Report

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Q U A R T E R L Y R E P O R T

S E L E C T E D I N C O M E S T A T E M E N T D A T A Year EndedJune 30,

Three Months EndedJune 30,(Dollars in thousands except per share data, unaudited)

2017 2016 2017 2016Interest income $ 5,616 $ 5,507 $ 2,846 $ 2,675 Interest expense 1,159 1,193 579 604 Net interest income 4,457 4,314 2,267 2,071 Provision for loan losses 210 320 105 170 Net interest income after provision for loan losses 4,247 3,994 2,162 1,901 Noninterest income 1,314 1,453 662 766 Noninterest expense 5,247 5,418 2,586 2,647 Income before income taxes 314 29 238 20 Income taxes 50 (9) 41 (1)Net income $ 264 $ 38 $ 197 $ 21 Income per common share $ 0.12 $ 0.01 $ 0.09 $ 0.01

S E L E C T E D B A L A N C E S H E E T D A T A

(Dollars in thousands, unaudited) June 30,2017

March 31,2017

December 31,2016

September 30,2016

June 30,2016

Total assets $ 284,784 $ 284,648 $ 272,684 $ 276,570 $ 278,541 Gross loans 215,460 210,897 207,386 200,114 198,672 Total deposits 204,390 203,995 200,297 200,982 201,545 Total equity 25,511 25,131 24,878 25,325 25,235

S E L E C T E D A S S E T Q U A L I T Y D A T A

(Dollars in thousands, unaudited) June 30,2017

March 31,2017

December 31,2016

September 30,2016

June 30,2016

Nonperforming loans $ 1,978 $ 1,948 $ 2,733 $ 2,489 $ 2,000 REO and repossessed assets 71 77 174 536 608 Residential mortgage-backed securities 110 117 130 132 159 Total nonperforming assets $2,159 $ 2,142 $ 3,037 $ 3,157 $ 2,767

Allowance for loan losses $ 2,761 $ 2,859 $ 3,150 $ 1,615 $ 1,705 Allowance for loan losses to total loans 1.28% 1.36% 1.52% 0.81% 0.86%Nonperforming loans to total loans 0.92% 0.92% 1.32% 1.24% 1.01%Nonperforming assets to total assets 0.76% 0.75% 1.11% 1.14% 0.99%

O T H E R D A T A Year EndedJune 30,(Unaudited)

2017 2016Return on Average Assets 0.19% 0.03%Return on Average Equity 2.07% 0.30%Core Capital (Bank only) 9.19% 9.77%Net Interest Margin 3.69% 3.40%Efficiency 90.92% 93.95%

... - -.. To our shareholders, Dear shareholders,

Time marches on and we enter into the second half of 2017 with some wind in our sails. Earnings were modest - $264,000 or $0.12 per common share – for the six months ended June 30, 2017, an improvement from $38,000 or $0.01 per common share for the six months ended June 30, 2016. The improvement is primarily a combination of improved interest margin, lower provision for loan loss and reduced noninterest expense. The improved margin is the result of an increase in yield earned on securities, the result of purchasing approximately $5.0 million in municipal securities. We are not certain that continued interest margin improvement is likely as most market watchers believe the Fed will continue to increase short-term rates. Additionally, despite an increase of 0.75% in the prime rate in response to Fed actions over the past six months, long term rates remain flat. Consequently, it is possible that we will experience an inverted curve at some point this year. The provision for loan loss was lower after taking additional expense in the previous year to cover all projected losses from the discontinued auto loan program. The allowance for loan losses that we have built has grown to 1.28% of the total loan portfolio in comparison with a level of 0.86% one year ago. Nonperforming loans are 0.76% of average assets at June 30, 2017 and is consistent with our peers. Noninterest expense is lower than the same period of 2016 by $171,000, or 3.16%. Service charges, which represent the charges paid for technology and debit card transactions, are up $124,000 over last year. New online account opening, additional debit card users, the issuance of EMV (chip) cards, and vendor increases all contribute to the added cost. We have been able to offset this cost by a decrease of $80,000 in professional fees, which included a large reduction in FDIC regulatory assessment charges after a change in the method of calculation. Other expenses are down $92,000 as 2016 included the write-off of value on repossessed assets that will not be repeated. We have also reduced postage this year and will continue on our quest to find savings as we roll out electronic options to paper. Compensation is down $88,000 year over year as a result of a savings on the pension cost calculated using a customized discount rate assumption. Although we have added a few new positions, the cost has been covered by the $201,000 savings in pension expense.

We are in the process of re-assessing our strategic plan. Each summer, we take time to evaluate our progress, obtain current peer comparisons, consider new developments – regulatory, compliance, products, services, trends – etc. This year we are having an independent party provide us with their thoughts on our direction because banking continues to change rapidly.

The first consideration in this rapidly changing environment is our convenience and how that affects our satellite offices. Since 2006, we established offices in Waterloo, Union Springs, Auburn, Phelps and Farmington; the locations were selected based on our customer demographics. It was just recently, after the introduction of MyGenMobile banking, that we noted transaction volumes were decreasing significantly at our offices; however, transaction volumes originated via remote means (i.e., mobile banking, internet banking, ATM and debit cards) were increasing. As such, we began the process of retooling our offices to provide the convenience that customers are expecting. The offices are fast becoming a place to meet and strategize with customers with less emphasis on the transaction. In addition, several institutions are leveraging their office locations by offering some of their office space to third parties. We have one such arrangement so far and are considering whether this is a viable approach for other offices. We are also reconsidering staffing requirements for our offices – looking for more employees to be in the community or in our Support Teams going forward.

The change in customer habits is not just changing the office dynamic. The means of communication are also shifting quickly. The most

popular means is still by phone. Our Customer Contact Center regularly handles over 3,000 calls per month, which does not account for another 5,000 or so calls per month made directly to Generations employees. We also maintain a voice response system (VRU) that receives 3,900 calls per month; however, 75% are received from just 175 customers. At one time, our VRU was the “go to” means by which customers obtained account information with approximately 8,000 calls per month. However, with the advent and integration of internet banking and MyGenMobile, customer preferences are changing, to include a request for “live chat.” We will have live chat available to our customers by year end.

Fortunately, Finger Lakes residents still value personal relationships and in large measure appreciate a multi-faceted product offering. To that end, we have long offered insurance products and services through our wholly owned subsidiary, Generations Agency, Inc. With the recent acquisition of the Sweeney Agency in Phelps, we expanded our customer base in that region. We also offer brokerage, financial planning, 401(K) management, health insurance products and much more through Generations Investment Services. It is because of the personal relationships that we are able to offer some unique, community-based banking products as well. Our Affordable Transportation Program provides low-to-moderate income families – typically single mothers – with an opportunity to purchase a vehicle so that they can maintain employment. Our support for Habitat for Humanity of Seneca County, Inc. has resulted in over $1.6 million of value being added to the property values in the area and is changing lives and has helped us develop a Credit Rescue Program. The Credit Rescue Program is designed specifically for those in need of financial coaching and assistance to overcome an unexpected financial difficulty.

We compete with other banks of all sizes. Unfortunately, we are also regulated by the same entity that supposedly regulates the largest banks, and we are held at a higher standard. We also find ourselves competing with multi-billion dollar concerns – and not necessarily banks. Amazon, Google and WalMart to name a few are quickly entering the market as financial intermediaries. Worse yet, we compete with untaxed credit unions that have eliminated the common bond theory on which they were founded, expanded into commercial lending, implemented trust services and much more. With all this competition, Generations has to stay on top of current developments! For example, our MyGenMobile app is as robust an offering as the multi-billion and trillion dollar empire offerings. I know from my experience that having the ability to pay a person – any person – via MyGenMobile is the best, and that module isn’t offered by some of the super regional banks in our market. We just began offering co-branded personal and business credit cards as well. While this isn’t especially a significant revenue generating service for Generations, it will help develop further deeper relationships with our customers. Consider this, which would you rather deal with – an impersonal mega bank credit card company or a local community bank? We may not directly issue the credit card, but we know our customers will contact us directly if there are any issues, and we prefer that they do! There are several initiatives we are considering which will help us to maintain our competitiveness.

I appreciate your investment in our Company. Enjoy the summer, and we will keep posted as the Company progresses.

Menzo D. Case President & CEO

To our shareholders,Dear shareholders,

Time marches on and we enter into the second half of 2017 with some wind in our sails. Earnings were modest - $264,000 or $0.12 per common share – for the six months ended June 30, 2017, an improvement from $38,000 or $0.01 per common share for the six months ended June 30, 2016. The improvement is primarily a combination of improved interest margin, lower provision for loan loss and reduced noninterest expense. The improved margin is the result of an increase in yield earned on securities, the result of purchasing approximately $5.0 million in municipal securities. We are not certain that continued interest margin improvement is likely as most market watchers believe the Fed will continue to increase short-term rates. Additionally, despite an increase of 0.75% in the prime rate in response to Fed actions over the past six months, long term rates remain flat. Consequently, it is possible that we will experience an inverted curve at some point this year. The provision for loan loss was lower after taking additional expense in the previous year to cover all projected losses from the discontinued auto loan program. The allowance for loan losses that we have built has grown to 1.28% of the total loan portfolio in comparison with a level of 0.86% one year ago. Nonperforming loans are 0.76% of average assets at June 30, 2017 and is consistent with our peers. Noninterest expense is lower than the same period of 2016 by $171,000, or 3.16%. Service charges, which represent the charges paid for technology and debit card transactions, are up $124,000 over last year. New online account opening, additional debit card users, the issuance of EMV (chip) cards, and vendor increases all contribute to the added cost. We have been able to offset this cost by a decrease of $80,000 in professional fees, which included a large reduction in FDIC regulatory assessment charges after a change in the method of calculation. Other expenses are down $92,000 as 2016 included the write-off of value on repossessed assets that will not be repeated. We have also reduced postage this year and will continue on our quest to find savings as we roll out electronic options to paper. Compensation is down $88,000 year over year as a result of a savings on the pension cost calculated using a customized discount rate assumption. Although we have added a few new positions, the cost has been covered by the $201,000 savings in pension expense.

We are in the process of re-assessing our strategic plan. Each summer, we take time to evaluate our progress, obtain current peer comparisons, consider new developments – regulatory, compliance, products, services, trends – etc. This year we are having an independent party provide us with their thoughts on our direction because banking continues to change rapidly.

The first consideration in this rapidly changing environment is our convenience and how that affects our satellite offices. Since 2006, we established offices in Waterloo, Union Springs, Auburn, Phelps and Farmington; the locations were selected based on our customer demographics. It was just recently, after the introduction of MyGenMobile banking, that we noted transaction volumes were decreasing significantly at our offices; however, transaction volumes originated via remote means (i.e., mobile banking, internet banking, ATM and debit cards) were increasing. As such, we began the process of retooling our offices to provide the convenience that customers are expecting. The offices are fast becoming a place to meet and strategize with customers with less emphasis on the transaction. In addition, several institutions are leveraging their office locations by offering some of their office space to third parties. We have one such arrangement so far and are considering whether this is a viable approach for other offices. We are also reconsidering staffing requirements for our offices – looking for more employees to be in the community or in our Support Teams going forward.

The change in customer habits is not just changing the office dynamic. The means of communication are also shifting quickly. The most

popular means is still by phone. Our Customer Contact Center regularly handles over 3,000 calls per month, which does not account for another 5,000 or so calls per month made directly to Generations employees. We also maintain a voice response system (VRU) that receives 3,900 calls per month; however, 75% are received from just 175 customers. At one time, our VRU was the “go to” means by which customers obtained account information with approximately 8,000 calls per month. However, with the advent and integration of internet banking and MyGenMobile, customer preferences are changing, to include a request for “live chat.” We will have live chat available to our customers by year end.

Fortunately, Finger Lakes residents still value personal relationships and in large measure appreciate a multi-faceted product offering. To that end, we have long offered insurance products and services through our wholly owned subsidiary, Generations Agency, Inc. With the recent acquisition of the Sweeney Agency in Phelps, we expanded our customer base in that region. We also offer brokerage, financial planning, 401(K) management, health insurance products and much more through Generations Investment Services. It is because of the personal relationships that we are able to offer some unique, community-based banking products as well. Our Affordable Transportation Program provides low-to-moderate income families – typically single mothers – with an opportunity to purchase a vehicle so that they can maintain employment. Our support for Habitat for Humanity of Seneca County, Inc. has resulted in over $1.6 million of value being added to the property values in the area and is changing lives and has helped us develop a Credit Rescue Program. The Credit Rescue Program is designed specifically for those in need of financial coaching and assistance to overcome an unexpected financial difficulty.

We compete with other banks of all sizes. Unfortunately, we are also regulated by the same entity that supposedly regulates the largest banks, and we are held at a higher standard. We also find ourselves competing with multi-billion dollar concerns – and not necessarily banks. Amazon, Google and WalMart to name a few are quickly entering the market as financial intermediaries. Worse yet, we compete with untaxed credit unions that have eliminated the common bond theory on which they were founded, expanded into commercial lending, implemented trust services and much more. With all this competition, Generations has to stay on top of current developments! For example, our MyGenMobile app is as robust an offering as the multi-billion and trillion dollar empire offerings. I know from my experience that having the ability to pay a person – any person – via MyGenMobile is the best, and that module isn’t offered by some of the super regional banks in our market. We just began offering co-branded personal and business credit cards as well. While this isn’t especially a significant revenue generating service for Generations, it will help develop further deeper relationships with our customers. Consider this, which would you rather deal with – an impersonal mega bank credit card company or a local community bank? We may not directly issue the credit card, but we know our customers will contact us directly if there are any issues, and we prefer that they do! There are several initiatives we are considering which will help us to maintain our competitiveness.

I appreciate your investment in our Company. Enjoy the summer, and we will keep posted as the Company progresses.

Menzo D. CasePresident & CEO

I I I I I I I

Q U A R T E R L Y R E P O R T

S E L E C T E D I N C O M E S T A T E M E N T D A T A Year Ended Three Months Ended (Dollars in thousands except per share data, unaudited) June 30,

2017 2016 2017 2016$ 5,616 $ 5,507 $ 2,846 $ 2,675

1,159 1,193 579 604 4,457 4,314 2,267 2,071

210 320 105 170 4,247 3,994 2,162 1,901 1,314 1,453 662 766 5,247 5,418 2,586 2,647

314 29 238 20 50 (9) 41 (1)

$ 264 $ 38 $ 197 $ 21 $ 0.12 $ 0.01 $ 0.09 $ 0.01

June 30,

Interest income Interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Noninterest income Noninterest expense Income before income taxes Income taxes Net income Income per common share

S E L E C T E D B A L A N C E S H E E T D A T A

December 31, September 30, June 30,(Dollars in thousands, unaudited) 2016 2016 2016 Total assets

June 30, 2017

March 31, 2017

$ 284,784 $ 284,648 215,460 210,897 204,390 203,995

25,511 25,131

June 30, 2017

March 31, 2017

$ 1,978 $ 1,948 71 77

110 117 $2,159 $ 2,142

$ 2,761 $ 2,859 1.28% 1.36%0.92% 0.92%

$ 272,684 $ 276,570 $ 278,541 Gross loans 207,386 200,114 198,672 Total deposits 200,297 200,982 201,545 Total equity 24,878 25,325 25,235

S E L E C T E D A S S E T Q U A L I T Y D A T A

December 31, September 30, June 30,(Dollars in thousands, unaudited) 2016 2016 2016 Nonperforming loans $ 2,733 $ 2,489 $ 2,000 REO and repossessed assets 174 536 608 Residential mortgage-backed securities 130 132 159 Total nonperforming assets $ 3,037 $ 3,157 $ 2,767

Allowance for loan losses $ 3,150 $ 1,615 $ 1,705 Allowance for loan losses to total loans 1.52% 0.81% 0.86% Nonperforming loans to total loans 1.32% 1.24% 1.01% Nonperforming assets to total assets 0.76% 0.75% 1.11% 1.14% 0.99%

O T H E R D A T A Year Ended (Unaudited)

2017 20160.19% 0.03%2.07% 0.30%9.19% 9.77%3.69% 3.40%

90.92% 93.95%

June 30,

Return on Average Assets Return on Average Equity Core Capital (Bank only) Net Interest Margin Efficiency

Seco

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20 E Bayard Street // Seneca Falls, NY 13148-0111PRESORTED

FIRST-CLASS MAILU.S. POSTAGE

PAIDCOMMUNICATION SERVICES

SENECA-CAYUGA BANCORP, INC.

Q2 2017 Quarterly Report

freedom a partner to ride shotgun

... - -..

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Q U A R T E R L Y R E P O R T

96.7994.7594.59 93.95 93.65net income efficiency 90.92 80.14 80.30

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IN

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IN

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682116-66 -32 -1502

Q42015

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22016 2016 2016 2016 2017 2017 2015 2015 2016 2016 2016 2016 2017 2017

net interest margin cost of funds

IN

P

ER

CE

NT

S

IN

P

ER

CE

NT

S

3.96 1.08 1.061.05 1.05 1.051.03 1.03

1.01 3.693.683.67 3.663.63

3.433.40

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22015 2015 2016 2016 2016 2016 2017 2017 2015 2015 2016 2016 2016 2016 2017 2017

yield on assets provision for loan losses1845

100 105 1054.414.39

IN

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CE

NT

S

IN

T

HO

US

AN

DS

4.93

700

1704.654.644.63 4.63 150 1504.62

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22015 2015 2016 2016 2016 2016 2017 2017 2015 2015 2016 2016 2016 2016 2017 2017

loan composition deposit composition

IN

P

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CE

NT

S

52%

8%

10%

20%

10%

IN

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CE

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S

12%

5%

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n Savings n 1-4 Family n Time DepositsnManufactured Homes n Interest Bearing Checking

nCommercial Real Estate nMoney Market

Home Equity & Consumer nNoninterest Bearing Checking nCommercial “C&I”